ABSTRACT: We study competition in two sided markets with common network externality rather
than with the standard inter-group effects. This type of externality occurs when both
groups benefi t, possibly with different intensities, from an increase in the size of one
group and from a decrease in the size of the other. We explain why common externality
is relevant for the health and education sectors. We focus on the symmetric equilibrium and show that when the externality itself satisfi es an homogeneity condition then
platforms pro ts and price structure have some speci c properties. Our results reveal
how the rents coming from network externalities are shifted by platforms from one side
to other, according to the homogeneity degree. In the specifi c but realistic case where
the common network externality is homogeneous of degree zero, platforms pro t do not
depend on the intensity of the (common) network externality. This is in sharp contrast
to conventional results stating that the presence of network externalities in a two-sided
market structure increases the intensity of competition when the externality is positive
(and decreases it when the externality is negative). Prices are affected but in such a
way that platforms only transfer rents from consumers to providers.

Comments

Hi,
I was looking for good material on this topic, but unfortunately, couldn’t find one. You post solved my big problem. Common externality is important for the health and education sectors. Different intensities affect in different way. this contrast in economic term known as competition in two-sided market. I personally like your blog. You have shared good work. Thanks a lot, keep up the good and informative work. I will bookmark your site to check further posts from you.